10/31/2019 Understanding the University Budget Kelley Westhoff Executive Director for Budget, Planning, & Analysis October 24, 2019

Agenda The Washington State Budget & Higher Education Sector Budget Models The WSU Budget The WSU Budget Office WSU Budget Policies Financial Recovery

Washington State Budget & Higher Education Sector

Washington State Budget & Higher Education Sector Washington enacts budgets on a two-year cycle - Biennial budgets are adopted in odd-numbered years By law, the Governor must propose a biennial budget before Legislature convenes in January - 2012 law requires a balanced operating budget Biennial budget can be modified in any legislative session - Supplemental Budgets

Washington State Budget & Higher Education Sector 10/31/2019 Washington State Budget & Higher Education Sector Governor Proposed Budget Dec Legislature Convenes January OFM Reviews Agency Requests (Capital) Scoring Process Fall Legislative Regular Session Ends March / April Agencies Submit Budget Requests September State Budget Cycle Governor Signs Budget May/June OFM Issues Budget Instructions June Supplemental Budget Requests Budget Takes Effect July 1 Agencies Submit Allotments Summer 2017 Financial Managers Conference

The Higher Education Sector Washington State Budget & Higher Education Sector The Higher Education Sector Comprised of: 2 Research Universities 4 Regional Universities State Board of Community and Technical Colleges (34 total colleges) Washington Student Achievement Council – (financial aid / student success advocacy) Discretionary funding – from the state level K-12, human services, pension obligations and debt service comprise between 2/3 – 3/4 of the state budget Higher education is a sector that is considered for funding after these ‘mandatory’ obligations are met.

The Higher Ed Sector – Operating Budget Washington State Budget & Higher Education Sector The Higher Ed Sector – Operating Budget

Washington State Budget & Higher Education Sector Higher Education Sector General Fund Appropriations Overall state spending increased $7.1B between 2001-2003 and 2011-13. Overall spending on higher education decreased $198M in the same timeframe, and Washington public baccalaureate institutions saw a disproportionate $498M decrease in state funding.

Washington State Budget & Higher Education Sector Overall state spending has increased $19.3B since 2001-2003. Overall spending on higher education has increased $913M in the same timeframe, while Washington public baccalaureate institutions have seen a $95M increase in state funding.

2019-21 Biennial Operating Budget 10/31/2019 2019-21 Biennial Operating Budget Template-Primary on 201-shield

$10.8M for ESF College of Medicine Completion funding 10/31/2019 State Budget Breakdown Fully Funded Requests $10.8M for ESF College of Medicine Completion funding $3.6M for ESF College of Medicine Expansion funding Template-Primary on 201-shield

Partially Funded Requests 10/31/2019 State Budget Breakdown Partially Funded Requests $1.4M M&O for buildings to be completed this biennium $500K for soil health initiative $15.4M of our $38.4M request for compensation Template-Primary on 201-shield

Unfunded M&O digital classroom State Budget Breakdown 10/31/2019 Template-Primary on 201-shield

Other Funding / Mandates 10/31/2019 State Budget Breakdown Other Funding / Mandates Miscellaneous bills Clean Energy Veteran’s mental health counselor Suicide/crisis counseling hotlines $5.4M compensation and central service support (foundational support) Template-Primary on 201-shield

Tuition & Foundational Support 10/31/2019 Tuition & Foundational Support Budget assumes $20.2 million of new costs for compensation and central services will be covered by new tuition. Budget writers recognized that the assumed costs covered from tuition ($20.2 million) are greater than the new tuition WSU could generate, so ‘Compensation and central service’ support (foundational support) of $5.3 million was provided as state appropriation to reduce the costs assumed to be covered from new tuition. Net amount WSU is expected to generate from new tuition $14.8 million Template-Primary on 201-shield

Budget Models Budget Models

EASY Budget Models Two classic models in higher education: Incremental Budget v. Responsibility Centered Budget EASY

Budget Models Incremental Budget employs an allocation process where units’ legacy funding levels increase (or decrease) incrementally based on overall changes in institutional resources. $

Budget Models Example of Incremental Budgeting: PBL – Planning Budget Level Units have base levels of funding, which is backed by a pool of tuition plus state appropriations. When new state funding is provided, such as for mass salary increases, each unit receives a proportional increase in PBL.

Responsibility Centered (RCM) Budget allocates resources such as tuition to the units that generate them, which is intended to incentivize revenue growth and cost control.

Budget Models WSU’s Enrollment Based Budget (EBB) Model for undergraduate enrollment on the Pullman and Spokane campuses is an example of an RCM element of the budget. Under this model new undergraduate tuition is allocated to the colleges that generate it through new enrollment.

10/31/2019 Budget Models Another key element of an RCM budget is that revenue generating units are responsible, typically through a tax, for paying the costs of institutional overhead and funding a subvention fund that is used to subsidize units that may not generate enough revenue to operate at a profit, but are vital to the mission of the institution. TAXES Template-Primary on 201-shield

Budget Models WSU uses this type of overhead assessment with our campuses in Vancouver and Tri-Cities. Both those campuses receive the tuition they generate less an 11% assessment for institutional support.

The WSU Budget The WSU Budget

10/31/2019 The WSU Budget University Operating & Capital Budgets 2015-17 Biennium - $2.297 Billion Total Capital 13% Capital 13% $296.7M $2.0B Operating 87%

The WSU Budget 2015-17 Capital Budget Total Authority: $311.7 M Projected Expenditures: $296.7 M (includes Re-appropriation Balances) S&A Fees & Athletics less than1% each WSU Building/Land Grant Endowment 16% Housing & Dining 4% Local/Private 53% State General Obligation Bonds 26% Parking 1%

10/31/2019 The WSU Budget Use of 2015-17 Capital Budget – By Expense Type State Appropriation, Land Grant Income, and Student Building Fees Minor Capital Projects – 20% Preventative Maintenance (Operating) – 7% Major Capital Projects – 73%

2015-2017 Operating Budget Fund Sources – Estimated Total: $2 2015-2017 Operating Budget Fund Sources – Estimated Total: $2.0 Billion Net Investment Income - 6% Other 1% Gifts/Endowment – 4% *Net Operating Tuition & Fees 24% Federal Appropriations 1% *State Appropriations 16% Net Restricted Student Fees 4% Auxiliary Enterprises 14% Federal Grants & Contracts 16% Ed Dept Sales & Services 2% Local Grants & Contracts 3% State Grants & Contracts 9% * Available for allocation

Sources of Funds for Core University Functions 10/31/2019 The WSU Budget Sources of Funds for Core University Functions State Appropriations Net Operating Tuition Facilities & Administrative (F&A) Fees on Grants and Contracts All are used to fund the permanent operating budget of the University

State and Tuition Funding per FTE (in 2017 Dollars) 10/31/2019 The WSU Budget : Tuition State and Tuition Funding per FTE (in 2017 Dollars) Adjusted for inflation, the total cost of educating a student at WSU has remained steady during 20 years of declining state investments. Student tuition now covers 50% of the cost of education.

The WSU Budget : Tuition Net Operating Fees Net Tuition (Operating Fee) Revenue Less: 4% Aid Fund Less: Operating Fee Waivers Gross Operating Fees

The WSU Budget : Tuition Components of Tuition

Net Operating Fees by Category The WSU Budget Net Operating Fees by Category Pie chart of percentages

Undergraduate Net Operating Fees The WSU Budget Undergraduate Net Operating Fees

Tuition Policy-Post Recession The WSU Budget : Tuition Tuition Policy-Post Recession Tuition setting authority RCW 28B.15.067 2013-15 Biennium No increase in resident UG tuition per legislative mandate, WSU held all rates flat. 2015-17 Biennium Resident undergraduate tuition (operating fee portion) reduced by 5% for academic year 2015-16 and by an additional 10% in academic year 2016-17, per legislative mandate. Backfill state funding was provided. Although authorized to increase tuition by any amount for all other student categories, WSU opted for no tuition increase in academic year 2015-16, or 2016-17. 2017-19 & 2019-21 Biennium Beginning with the 2017-18 academic year, full-time tuition operating fees for resident undergraduates may increase by no more than the average annual percentage growth rate in the median hourly wage for Washington for the previous fourteen years as the wage is determined by the federal bureau of labor statistics. Governing boards may set rates for all other categories of students

Tuition Rate Change History 10/31/2019 Tuition Rate Change History Until this year there had been no increases to Non-resident Undergraduate or Graduate rates since AY 2012-13 Resident Undergraduate rate increases have been modest (inflationary) or decreased since AY 2013-14 Template-Primary on 201-shield

Pac-12 Peers: Undergraduate Tuition and Fees 10/31/2019 Pac-12 Peers: Undergraduate Tuition and Fees WSU undergraduate tuition + fees are lower than the Pac-12 average for both residents and non-residents. WSU resident undergraduate tuition & fees are fifth lowest in the Pac-12 WSU non-resident undergraduate tuition & fees are the lowest in the Pac-12 Template-Primary on 201-shield

WSU Budget Principles Distribution of F&A Revenue 10/31/2019 The WSU Budget : F&A WSU Budget Principles Distribution of F&A Revenue 23% to F&A Revenue Generating Units 7% Libraries 38% Campus Support 28% University 4% Office of Research For more information: BPPM 40.25

10/31/2019 The WSU Budget Use of 2015-17 Biennial Budget – By Function State Appropriation and Operating Tuition Plant Operations & Maintenance 9% Institutional Support 10% Instruction 50% Student Services 5% Library 2% Primary Support 9% Public Service 6% Research 9%

10/31/2019 The WSU Budget Use of 2015-17 Operating Budget – By Expense Type State Appropriation and Operating Tuition Salaries and Wages 67% Benefits 18% Operations 15%

The WSU Budget Office The WSU Budget Office

What Does the Budget Office Do? 10/31/2019 The WSU Budget Office What Does the Budget Office Do? State Budget - Requests, Allocations, and Reporting Allotments Compensation Impact Model Internal Budget Processes (review, hearings, summit) Revenue Tracking (F&A, 17A, AFI) Tuition Modeling (census day) Central Benefit Pool Tracking / Analysis Expenditure Monitoring Area Carryforward Projections Benefit Model Accrual Analysis Tuition Schedules MSI, if applicable Ad hoc Decision Support University Workgroups & Committees System Maintenance (HEPPS;MSI;DEPPS;AIS;BPS) 2017 Financial Managers Conference

WSU Budget Policies WSU Budget Policies

Allocation of Resources 10/31/2019 WSU Budget Policies Allocation of Resources General funding is tracked by campus Budget allocations are provided by the Budget Office to areas/campuses Areas/campuses determine distribution of funding to their departments

WSU Budget Policies Pooled Benefits 10/31/2019 WSU Budget Policies Pooled Benefits WSU utilizes a central benefit pool to allocate resources to cover benefit related costs for particular fund types (001-XX, 143-XX, 148- 02, 148-05, 148-06) Automatic budget allocations are made to area departmental operating accounts where actual benefit expenses are incurred each payroll expense cycle 2017 Financial Managers Conference

Accruals (Salary Savings) 10/31/2019 WSU Budget Policies Accruals (Salary Savings) Central pool provides for turnover costs (sick and annual leave payouts), and PIDs Areas retain savings from vacant faculty and graduate student positions on WSU program 05 (libraries) and 06 (instruction) Areas retain savings from the transfer of expenditures to grants (programs 11A-14Y) regardless of employee type Central captures savings from vacant classified, administrative professional, and non-instructional faculty positions for the first four months. Subsequent accruals are returned to areas upon request * WSU Vancouver, WSU Tri-Cities, Extension, and Ag Research manage their own accruals.

WSU Budget Policies Carryforward 10/31/2019 WSU Budget Policies Carryforward Most funds carry forward at the area level. Dean, vice president or chancellor decides if they carry forward at the department level. Operating budgets F&A accounts Donated funds Some funds do not carry forward Equipment replacement allocations Special allocations for specific purposes, such as proviso funds

Financial Recovery Financial Recovery

Financial Recovery Budget was one of the first topics President-elect Schulz addressed his in message to campus in May 2016 … “We have been spending more money annually than has been brought in, which is not sustainable” “We are spending down reserves”

Recovery Plan Specifics Financial Recovery Recovery Plan Specifics Three-year recovery plan calls for $10 million improvement over three consecutive years Areas have specific improvement targets to be met through expenditure reductions or revenue enhancement or both Areas retain savings (not a budget cut) Monthly reporting, using a common template

10/31/2019 Overall Recovery While we have exceeded our target for each of the last two years, the overall reserve balance (Areas + Central) is flat. Template-Primary on 201-shield

Other Budget / Fiscal Initiatives Financial Recovery Other Budget / Fiscal Initiatives Regular updates to campus community President’s News & Notes columns Fiscal Health Web Page University Fiscal Health Advisory Committee

10/31/2019 QUESTIONS